By Fenwick & West LLP, Life Sciences Group

Healthcare IT

10/12/2017

Fenwick’s Sixth Annual Digital Health Investor Summit started on an upbeat note with Rock Health’s Megan Zweig sharing the venture fund’s mid-year funding report. After the uncertainty brought by the 2016 presidential election and the political drama surrounding the future of the Affordable Care Act, it would not seem surprising to see investors take a step back from digital health. As it turns out, investment in the sector by the middle of 2017 hit $3.5 billion—a record in terms of both the number and size of deals.

Resilient Investors

Zweig credits investor resilience in part to the shift to value-based care and the rise of consumerism in healthcare. While these trends may have been set in motion by the passage of the Affordable Care Act, they have been embraced by both payers and patients and are likely to be central to the healthcare market going forward.

Peter van der Goes of Goldman Sachs reported that public healthcare investors have shown the same resilience. He noted that the market for healthcare IT rose significantly in the election’s aftermath along with the broader market. Publicly traded stocks in the sector took a hit after the failed attempt at healthcare reform, but even if investors don’t see a reason to take valuations higher, they don’t seem to be abandoning the sector either.

Where Have All the IPOs Gone?

So far the number of exits, however, has not matched the increases in investment during the year’s first half. There have been no digital health IPOs so far in 2017. Nevertheless, Zweig indicated that Rock Health anticipates the market for IPOs may return soon. The IPO pipeline includes seven digital health “unicorns,” and another dozen well-capitalized companies are waiting in the wings as well.

Van der Goes said he expects M&A exits to continue at a steady pace in the sector, noting that buyers are focused on assets they can scale. Larger deals appear to be increasing with four deals valued in excess of $1 billion so far in 2017 (compared to three for all of 2016). The total value of deals year-to-date stands at $10.8 billion in comparison to a total of $20.6 billion in 2016 (which included IMS’s $13.2 million acquisition of Quintiles).

Partnering Beyond Providers

Van der Goes said that acquirers continue to be sponsors, healthcare strategics and some horizontal IT players. He expects that going forward the pool of buyers for digital health companies will likely expand. He noted that pharmaceutical companies (which need to leverage data to improve their R&D productivity), payers (beyond United Health, an active acquirer), and others (including Alphabet, IBM, GE and McKesson) will become more active in the space.

Speakers on the summit’s corporate development panel represented several different approaches to partnering and acquisitions. Steve Sweeny of Medtronic said that his company oftentimes partners with an eye to an acquisition, noting his team doesn’t like to “create value to see it walk out the door.” On the other hand, David Icke of BD said an acquisition can follow from an investment, though not necessarily as a general rule. In the case of Illumina, Srini Kodali said his firm was open to “developing joint IP in the right area and could spin it out.”

Pivoting to B2B

Digital health companies are increasingly pivoting to a B2B model, said Zweig in the opening presentation. In a recent survey by Rock Health, 61% of companies that launched with a B2C model had converted to a B2B or B2B2C model.

Rebecca Lynn of Canvas Ventures echoed that observation in her interview with CNBC’s Chrissy Farr during the closing session. “Customer-facing companies have all pivoted to B2B,” Lynn explained, adding that we see a similar trend in the FinTech space. She noted that consumers have a tendency to take an ‘ignorance is bliss’ approach when it comes to investing in tools to improve their health—particularly in healthcare where consumers don’t pay related costs directly.

The Allure of AI

The panelists expressed varying degrees of skepticism at AI-centric deals. David Icke quipped that AI has come to stand for “algorithm included.” Lynn said she is somewhat suspicious of startups that claim “AI can solve everything.” She said AI can solve up to 80% of any healthcare problem, but there likely will always be a need for a human component.

Conversely, she said services companies are not necessarily bad investments as long as there is a process that can be scaled.

As the digital health sector matures we expect to continue seeing more and larger deals, greater diversity in both private and public investors, and business models that continue to be refined as startups gain market experience and understanding. Businesses will continue to leverage Big Data and AI in digital health opportunities. But entrepreneurs should keep in mind that much of healthcare is a service business and the best solutions to healthcare problems may also require a human component or intervention.

The pilot program is a first step in the FDA’s reimagined digital health product oversight approach. What makes it stand out from the FDA’s prior regulatory approach is its aim "to develop a new approach toward regulating this technology – by looking first at the software developer or digital health technology developer, not the product."

Under its firm- and developer-based approach, the CDRH could "pre-certify" eligible digital health developers who "demonstrate a culture of quality and organizational excellence based on objective criteria, for example, that they can and do excel in software design, development, and validation (testing). Pre-certified developers could then qualify to be able to market their lower-risk devices without additional FDA review or with a more streamlined premarket review."

In his blog post, the FDA’s Scott Gottlieb announced that in August companies can submit a statement of interest that includes the qualities listed above and request participation in the pilot to FDAPre-CertPilot@fda.hhs.gov. The FDA’s Digital Health Team will evaluate submissions and select companies that reflect the broad range of software developers later in the month. “A critical component is that we will include small and large companies, traditional and non-traditional medtech companies, and products that range in risk,” Gottlieb said in his post. (Read more about how the CDRH is recruiting participants to the pilot program.)

06/01/2017

Last September, we noted that payers and providers were expected to become increasingly active digital health strategic investors given their challenges to improve margins and outcomes.

While there were only three investments by payer/providers in the second half of 2016, we saw a notable uptick in investment activity in the first quarter of 2017, when 10 such deals closed. The Q1 2017 total also surpassed Q1 2016 which saw seven payer/provider deals, according to our analysis of PitchBook data. Of the ten investment rounds in early 2017, payers and providers served as the lead investor in about half of the deals. Only three of these investment rounds, however, exceeded $10 million.

As might be expected, most of the investments were in platform or productivity software plays, part of a long-term trend in digital health investing underscoring the strategic need for payers and providers to improve efficiency. The exceptions include BlueCross BlueShield Venture Partners’ investment in Hygieia, a diabetes insulin guidance system that includes a device and software component. The other was Mayo Clinic Ventures’ investment in AliveCor, the smartphone-based EKG maker.

Led a Series B round for higi, a cloud-based, HIPAA-compliant software platform that collects health care data across devices. The size of the round was not disclosed.

Participated in a $9 million Series A round for Solera, a provider of a SaaS platform that supports a national network of community organizations and digital providers of chronic disease prevention programs. Other investors in the round included Sandbox Industries and SJF Ventures.

Led a late stage investment for an undisclosed amount in Hygieia through Blue Cross Blue Shield of Michigan. Hygieia provides diabetes insulin guidance through a combination of a glucose meter, cloud-based technology and a team of health care professionals.

Participated in a $13.81 million Series A investment in Vitruvian Networks, a developer of software for scaling and digital services for cell and gene therapies. Other investors in the round included Draper Fisher Jurvetson and GE Ventures.

Participated in an $8 million Series B investment with Chengwei Capital for Sensely, a developer of a virtual nurse patient engagement platform. Other investors included Augsburg Investment, Bioved Ventures, CG Health Ventures, Fenox Venture Capital and Stanford StartX.

Participated in a $7 million late-stage investment in Ingenious Med, a developer of a cloud-based practice performance management platform. Ascension Ventures, Heritage Group and North Bridge Growth Equity also participated in the investment round.

Participated in a $4.9 million Series A round for ConsejoSano, a Spanish language health care platform. The round was led by 7wire Ventures and included Acumen Fund, Impact Engine, Oxeon Partners, TOTAL Impact Capital and Wanxiang Healthcare Investments.

Participated in a $1 million Seed Round for Keriton, provider of breast milk management and analytics software for neonatal intensive care units. The lead investor in the round was BioAdvance, and other investors included 37 Angels, AmeriHealth, Ben Franklin Technology Partners of Southeastern Pennsylvania, Dorm Room Fund, Dreamit Ventures, Steve Barsh, and Wharton School of the University of Pennsylvania Endowment.

In March, Grand Rapids-based Spectrum Health announced the launch of a new $100 million fund, Spectrum Health Ventures. Notably though, no new investments were generated in Q1 2017 by some of the most prolific payer/provider investors of 2016, including the University of Pittsburgh Medical Center, Partners HealthCare Innovation or Intermountain Healthcare.

As a result of this increased Q1 activity, we are likely to see more, not less, investment activity from payer and provider strategic investors in the months to come.

01/04/2017

If your work involves life sciences dealmaking, you know it’s the time of year to start firming up your plans for the week of the J.P. Morgan Healthcare Conference. In the last 10 years, the second week of January in San Francisco has evolved from a J.P. Morgan private meeting for healthcare investors to a week packed solid with conferences, seminars and, of course, parties and receptions related to all things life sciences and healthcare.

Investors come to San Francisco expecting to do deals, but also to gain a sense of the direction the industry is going to take in the next 12 months. Year 2016 was marked by the outcomes of the watershed Brexit vote in the United Kingdom and the contentious presidential election in the United States—events that affected life sciences companies and markets as a whole. It was also the year New York outpaced Silicon Valley in digital health funding for the first time ever, according to a recent CB Insights survey.

2017 Promises to Usher in Unprecedented Macro-Economic Challenges

The Fed recently raised its key interest rate by 0.25% and signaled that more increases should be expected in 2017. The new administration is taking shape and may potentially include an FDA commissioner who has argued the agency should consider safety when evaluating new drugs and devices and efficacy only after the drug has been legalized.

President-elect Trump’s choice to lead the Department of Health and Human Services, Tom Price, appears committed to trying to make good on candidate Trump’s promise to repeal and replace the Affordable Care Act.

Up for Discussion in SF: Rare Diseases, Venture Philanthropy, “Tech Giants” as Investors and More

At Biotech Showcase, the largest of the events running concurrently with JPM, keynote sessions will cover the increasing importance of real-world evidence, the role of diversity in the industry, what to expect from the Trump administration, investor’s increasing interest in rare diseases, the state of financial markets and the media’s relationship with the industry.

The East/West CEO Conference, which features my Fenwick colleague Matt Rossiter, also offers sessions on diversity and the media’s perception of the industry, as well as social responsibility and venture philanthropy.

OneMedForum explores the gamut of capital sources including relatively new options available under the JOBS Act and family offices and foundations. At RESI, the agenda also is heavy on analysis of various funding sources, but notably includes a session on venture philanthropy (a popular topic this year) and the role of “tech giants” as investors.

Tech players have a growing presence during the week that has been traditionally all about biotech. Biotech Showcase’s producers added two stand-alone events last year: The MedTech Showcase and the Digital Medicine Showcase. This year, both events have been expanded to two full days.

New this year, Clarivate Analytics, formerly the IP and science business of Thomson Reuters, is hosting several one-hour sessions from January 9 to January 10 reviewing notable deals.

This is by no way a complete list of events. There are also networking receptions (including Fenwick’s), fun runs, breakfast briefings and late night soirées too numerous to mention here. Publisher Big3Bio has produced a guide to all of the events during what it calls BioWeekSF and an IR firm has posted a list of what it terms private events, but both sources admit they’ve no doubt missed some.

It’s safe to say that in the coming year life sciences, biotech and digital health will play a more important role in the economy as a whole, and traditional tech companies will increase their footprint in these industries.

12/14/2016

Investors are increasingly interested in companies with technologies that will be subject to U.S. Food and Drug Administration (FDA) regulation.

Until recently, some investors shied away from companies targeting the regulated space out of concern that the regulatory landscape created too much risk. However, thanks in part to new guidance from the FDA regarding the treatment of digital health apps, the tide is turning and many investors feel the opportunities outweigh the downsides of longer product cycles and negotiating payment through third parties. As MobiHealthNews reports, greater clarity from the FDA will be welcomed in many parts of the industry. We believe the number of cleared devices will increase next year as a result of three guidances issued by the FDA this summer.

General Wellness

The most significant was the final guidance for low-risk general wellness devices. This guidance clarifies when wellness devices and apps cross over into the regulated sphere.

Devices and apps making general wellness or fitness claims, and those that do not make “any reference to diseases or conditions,” should not be subject to agency oversight. These claims include assertions related to weight management, fitness, relaxation or stress management, mental acuity, self-esteem, sleep management or sexual function.

However, claims that a product will treat or diagnose diseases such as obesity, an eating disorder, an anxiety disorder, autism or muscle atrophy, or a claim that a device or app will restore a structure or function impaired due to a disease or a condition, may require FDA clearance.

The FDA noted that the category of low risk general wellness devices also includes products that 1) “promote track, and/or encourage choice(s), which, as part of a healthy lifestyle, may help to reduce the risk of certain chronic diseases or conditions; and 2) … promote track, and/or encourage choice(s) which, as part of a healthy lifestyle, may help living well with certain diseases or conditions.” (Emphasis is the FDA’s.)

The guidance also provides some tests to determine if and when a product is not low risk and thus subject to clearance. Those tests include:

1) Is the product invasive?

2) Is the product implanted?

3) Does the product involve a technology that may pose a risk to the safety of users and other persons?

Submitting a 510(k) for a Software Change to an Existing Device

Over the summer, the agency also provided draft guidance on when a software change to an existing device requires a new 510(k) clearance. As app developers typically issue regular software and firmware updates, this guidance will be important in helping digital health tool developers to know when an update will trigger a new clearance.

Using Data From Real-World Sources

Finally, the agency issued draft guidance on the use of real-world evidence to support regulatory decision-making for medical devices. This guidance covers when companies can use “real-world” data as evidence for FDA regulators who are making decisions regarding the company’s medical devices.

09/01/2016

A few months ago, following our fifth annual Digital Health Summit, the attendees made some predictions about product development and investment in the rapidly growing sector. Now that we are more than halfway through the year, we thought it would be interesting to see how those predictions fared against the investment results from the first half of the year. This data offers insight into developing trends and provides a valuable baseline against which we can judge future data.

Trend line:In terms of digital health companies targeting the part of the market that is subject to regulation, our analysis found 8.5 percent of venture investment in the digital health sector by value in the first half of the year went to companies developing products or services that would likely be subject to regulation. Recipients of investment range from companies producing therapeutic, monitoring or diagnostic devices to developers of decision support software.

Eight percent is modest, but it may be the tip of an iceberg. MobiHealthNews recently reported that more and more consumer-facing digital health companies are signaling a shift in focus away from unregulated fitness and wellness space and towards clinical applications for their technologies.

And the San Francisco Chronicle reports that over 100 clinical trials listed on the ClinicalTrials.gov website feature Fitbit trackers in addition to those trials using the Apple Watch, Jawbone, Garmin, Pebble and other devices.

At the dawn of the digital health revolution, some argued that fitness trackers were being marketed as a way for companies with long-range ambitions to produce devices with clinical applications to get to revenue in the short-term. If this trend plays out, those pundits may yet be proven right.

Trend line:Digital health venture fund Rock Health notes in its half-year report that corporate investors outpaced traditional venture funds in terms of the number of deals during the period. It calls out UPMC Enterprises, the venture arm of the University of Pittsburgh Medical Center, as a top corporate investor for 2016. At the beginning of the year, MedCityNews also noted that UPMC had stepped up its investment activity.

In addition to UPMC, we found almost a dozen healthcare systems making investments in digital health companies in the first half of the year, including Kaiser Permanente Ventures, Partners HealthCare Innovation, Intermountain Healthcare, University of Virginia Health System, MultiCare Health System, St. Joseph Health, Bayshore Healthcare, Children’s Medical Center of Dallas, Catholic Health Initiatives and HealthEast Surgery Center – Maplewood.

As healthcare systems struggle to improve their margins and outcomes and meet the requirements of the Affordable Care Act, they are natural strategics for digital health companies.

The Perseverance of Private Capital

Prediction:Private capital will continue to flow into the sector despite disappointing results in public markets.

Trend line:Many expected that after years of meteoric growth, digital health investing would decline in 2016 – particularly in light of the fact that nearly all publicly traded digital health companies are trading below their offering price. With only one digital health IPO so far in 2016 (NantHealth), public market sentiment may have deterred other IPO hopefuls, but it has not deterred private investors.

Rock Health reports just over $2 billion in funding through the first half of 2016 which the fund notes is on pace with 2014 and 2015. A healthy M&A market may be encouraging venture investors. Rock Health reports 87 recorded deals in the first half of the year accounting for $10.4 billion in disclosed dollars. This is a significant 73% increase over 2015.

If healthcare systems do emerge as key strategic investors, the number and value of M&A exits can only be expected to increase.

05/12/2016

Fenwick’s fifth annual Digital Health Investor Summit brought together investors who are active in the digital health space to discuss the evolving digital health sector and their investment outlook for the year ahead.

Here are my three key takeaways from this year’s Summit:

Playing in the Regulated Space

The consensus is it’s time to stop worrying and learn to love the regulated space. In previous years most entrepreneurs and investors balked at business plans that targeted the regulated portion of the market. Better to sell fitness trackers to consumers than wrangle with the FDA.

But this year participants felt the opportunities of working within the healthcare system outweighed the downsides of longer product cycles and negotiating payment through third parties. Jason Portnoy of Subtraction Capital pointed out that technology has been able to disrupt other highly regulated portions of the economy and there is no reason to think healthcare can’t be similarly disrupted. Vijay Lathi of New Leaf Venture Partners remarked that working in the regulated space provides protection from competitors.

Ambar Bhattacharyya of Maverick Capital Ventures summed up the regulated versus non-regulated path question succinctly, noting that “you can run, but you can’t hide from regulations,” adding that for wide adoption, payers and providers are going to demand data.

Healthcare Systems as Key Investors

One reason why investors and entrepreneurs are more comfortable with the regulated space may be because healthcare systems have become significant investors in the digital health sector. Healthcare systems have set up the equivalent of corporate venture investment arms to gain early access to new technologies that can help them reduce costs and improve efficiency. Like other strategic investors, these organizations should also be seen as potential acquirers.

Private Equity Continues to Flow but Public Markets Cool

As Rock Health reports, the digital health sector continues to attract record levels of venture investment. Even while the tech sector as a whole is experiencing a correction, year-over-year, aggregate digital health investment increased by nearly 50% in the first quarter of 2016.

Two Q1 deals accounted for more than a third of the quarter’s transaction value. The average deal size grew while the number of deals decreased. When Rock Health’s Mitchell Mom polled Summit participants, asking them to identify the biggest issue facing venture investment in digital health, the A-to-B round crunch was the clear winner.

In terms of public markets the outlook was gloomier. There were no digital health initial public offerings in the first quarter of the year, which was exacerbated by macroeconomic factors that pulled the market as a whole down during the quarter.

Furthermore, of the recent class of digital health companies that debuted in the public market since March 2014, only one is trading above its IPO price: IMS Health, which was not a typical venture backed IPO. Peter van der Goes of Goldman Sachs said this discount is a clear signal that the market likely wants to see something that looks different: a better value proposition, clearer ROI or demonstrated stickiness, etc.

Rock Health’s Mom said M&A has been the primary source of exits in the past year and they expect that M&A will remain the most common path to liquidity. He pointed out that M&A deals in the digital health space nearly doubled between 2014 and 2015 in terms of transaction volume.

With jittery public markets, growing interest by large healthcare systems and an increased appetite to make plays in the regulated space (which may demand more resources), the consensus is that we should see more strategic investments and acquisitions and potentially consolidation in the coming year.

01/11/2016

Among its list of defining quotes of 2015, Rock Health included one from a physician who was frustrated with the fact that, as she put it, “In my hospital there are 19 software systems across departments – few of which communicate with each other.” The lack of standardization for health care software goes a long way to explaining why infrastructure deals dominated private equity investments in digital health in 2015.

Infrastructure

In our analysis of the largest digital health investments of the year (those over $10 million), nearly 40% were investments in infrastructure to support workflow, payment processing, EHRs or encrypted communication. The largest infrastructure investment of the year was a minority growth financing in AvidXchange for $225 million led by Bain Capital Ventures with contributions from Foundry Group, KeyBanc Capital Markets, Nyca Partners, Square 1 Bank and TPG Capital.

Following close behind was a late stage investment in NantHealth by Allscripts for $200 million. The third largest infrastructure investment was a $174 million Series A round in Shanghai Pharmaceutical Big Health Yunshang. IDG Capital Partners and JD.com participated in the round.

Engagement

However, the single largest private investment in a digital health company in 2015 went to a Chinese company focused on consumer engagement. Guahao develops mobile apps that help patients locate providers and schedule appointments. It took in $394 million in a late-stage investment that included China Development Bank Capital, Fosun International, Goldman Sachs, Hillhouse Capital Management and Tencent Holdings.

The second largest investment in a consumer engagement company was a $152 million Series D investment in ZocDoc, which operates a platform where patients can book medical appointments online. Atomico, Baillie Gifford, Digital Sky Technologies, Founders Fund and Khosla Ventures participated in the round.

The third largest investment for the year in the sub-sector was a $145 million Series B investment in New York-based Oscar Health Insurance. Founders Fund, Goldman Sachs, Horizon Ventures and Wellington Management participated in the round that put Oscar in the unicorn club.

Monitoring and Diagnosing

The second largest digital health private equity investment of 2015 was in the monitoring and diagnosing sub-sector. Jawbone, developer of the UP fitness band, closed the largest financing round of the year picking up as much as $300 million in debt from BlackRock.

NantOmics, part of the NantHealth family, is developing a medical diagnostic tool for cancer patients. The company received the second largest investment for a monitoring or diagnosing company, taking in $150 million. The investors were not disclosed.

Treating

The largest investment in a digital health company focused on treating disease went to MDLIVE, a telemedicine company. The emergence of telemedicine has been capturing headlines all year, so it’s not surprising to see $50 million of growth equity investment from Bedford Capital go to this Florida-based developer of an integrated virtual health system.

Following closely behind is a $48 million Series C round that went to Fenwick client Omada Health. Omada Health is a digital behavioral medicine company that helps people change habits that put them at risk for preventable chronic conditions. Norwest Venture Partners, Andreessen Horowitz, dRx Capital, GE Ventures, Humana, Providence Health and Services, Providence Ventures, Rock Health and US Venture Partners participated.

Finally, Invenix, which is developing a smart-infusion management system, closed on a $42 million round of equity financing led by WuXi Healthcare Ventures. Cardinal Partners, CICA, Inc., Easterly Capital, Fidelity Biosciences and SCP Vitalife Partners also participated in the late-stage round.

12/10/2015

Our analysis of digital health investment in the third quarter of 2015 revealed that just under $3 billion was invested in the sector and more than half of that went to infrastructure providers.

Infrastructure

A total of $1.48 billion was invested in health infrastructure technology in Q3. The two largest infrastructure investments of the quarter were both late-stage deals and accounted for 28 percent of capital invested in the subsector.

The second largest infrastructure investment was in NantHealth, which develops cloud-based clinical operating systems. Allscripts was the only investor in the $200 million round.

There were 38 infrastructure investments throughout the quarter with an average value of $39 million. In addition to the two deals noted above, three other investment rounds topped $100 million.

Engagement

Investments in companies focused on consumer or patient engagement made up more than a quarter of investment in digital health in the third quarter. A total of $809 million was invested in technology aimed at improving engagement – with nearly half of that going to Chinese company Guahoa, which develops mobile apps to locate providers and schedule appointments. CDB Capital, Fosun International, Goldman Sachs, Hillhouse Capital Management and Tencent Holdings participated in the $394 million late-stage round.

The only other investment in the subsector that exceeded $50 million was a Series D investment in ZocDoc, which also operates a platform where patients can book medical appointments online. Atomico Baillie Gifford, Digital Sky Technologies, Founders Fund and Khosla Ventures participated in the $152 million round.

In all, there were 23 investments in this subsector with an average value of $35 million each.

Diagnosing and Monitoring

Companies developing tools to diagnose or monitor patients received $448 million in new funding in the third quarter. Out of a total of 21 investments, two were for $100 million or more, six rounds were for $10 million or less and the average round for the group was $21.3 million.

NantOmics, which is developing a medical diagnostic tool for cancer patients and part of the aforementioned NantHealth, received the largest investment within the subsector in a $150 million round. Investors were not disclosed.

Digital Health companies that focus on treating disease raised $142 million in the third quarter in 11 deals. The two largest deals of the quarter accounted for two-thirds of that total. The remaining investments were all for $15 million or less.

Fenwick client Omada Health, a digital behavioral medicine company that helps people change habits that put them at risk for preventable chronic conditions, raised the largest investment of the quarter for this subsector in a $48 million Series C financing. Norwest Venture Partners, Andreessen Horowitz, dRx Capital, GE Ventures, Humana, Providence Health and Services, Providence Ventures, Rock Health and US Venture Partners participated.

The second largest investment in the treatment category was in Ivenix, which develops a smart-infusion management system that communicates with other information technology platforms. Cardinal Partners, CICA Inc., Easterly Captial, Fidelity Biosciences, SCP Vitalife Partners and Wuxi Pharmatech participated in the late-stage round.

10/14/2015

At our Digital Health Summit earlier this year, Malay Gandhi, Managing Director at Rock Health, noted that once digital health venture investing accounts for 10% of all venture investment, we should start breaking out investment by industry subsectors.

That made us think it might be interesting to look at our monthly download of digital health investments by sub-sector. We borrowed a simple taxonomy from Accenture that includes four sub-sectors:

Infrastructure

Diagnosing and Monitoring

Engagement and

Treatment

Infrastructure

In the month of August, over half of the private investment in digital health went to infrastructure companies. There is still a lot of low-hanging fruit in this space as U.S. health care providers and payers look to increase efficiency in the wake of the ACA. Typically, investments in infrastructure companies are large, and August was no exception including two of the three largest deals of the month.

There were a total of 15 infrastructure investments in August with an average deal value of $41 million. While these investments are often later stage, in August the largest infrastructure round – also the largest round of the month – went to a Series A investment for $174 million in O2O (online-to-offline) a start-up founded by publicly traded Shanghai Pharmaceuticals.

AvidXchange, a provider of accounts payable and on-demand invoicing, also took in more than $100 million in August in a late stage round for $129.5 million. These two large deals accounted for more than a third of the investment that went into the sub- sector in the month.

Diagnosing and Monitoring

The diagnosing and monitoring sub-sector accounted for just under a quarter of digital health investment for the month. There were thirteen rounds for an average of $20 million each. There was one outlier in this group: Helix Opco, the developer of a consumer-facing genome platform, which received a $100 million early stage investment.

Nine of the deals were for $10 million or less, and the balance were in the $25-45 million range.

Engagement

Developers or patient engagement tools and platforms received seven investments in the month of August accounting for 16% of digital health deals. All but one of those rounds, however, was for $10 million or less. Investment in this sub-sector was dominated by a $152 million Series D round that went to ZocDoc. Members can find healthcare providers and book appointments online or through a mobile app.

Treatment

Six digital health companies focused on patient treatment received digital health investments in August, but investment in this subsector only accounted for two percent of the total. These were all seed or early stage rounds for less than $7 million.

These companies range from wellness platforms to interactive tools to treat diabetics. The subset of treatment-oriented companies is small and diverse at this point, but as biopharma continues to embrace the potential of digital health tools, we expect to see this subsector takeoff in the coming years.

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